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say, i don't disagree with anything that daniel has said, that the other piece of information that i think it's so important to get into people's hands as this dialogue goes forward is the untold story of what has happened to the cost since the affordable care act was passed. we are on the lowest cost increase ever in the history of this country on the overall health costs. ..
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>> and we also have access to this incredible data, the
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monthly polls that kaiser family foundation does that i know we all found a very viable. i am interested in, as you were looking at all of that, what were the things that most surprised you about the trends in enrollment and the things that you think are most important to the ultimate success as we saw? >> first of all, the secretary did not always like the polls. [laughter] >> the most amazing thing about the polls really was that they never changed. from passage until today. that is because randomly distributed almost perfectly along partisan lines. at this point i think we could ask the american people, will be affordable care at take customers are solve the energy crisis in america were turned
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the cs for our beloved boston red sox. [laughter] that is because we are not really having a political debate it is not really a debate about the aca. it is because in the political debate the hca has become the poster child for a larger debate between left and right about government and other things in our country. and what that means, and it may or may not remain the poster child for that larger political debate. we will see how that plays out over the next seven years. the big question in my mind is as more people get coverage and this becomes more real for the american people and no longer just a political symbol, does that judgment about the loss discussed focus more on the reality which is what we will find out.
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>> that is a great tennis -- transition to you, governor. you spoke in your remarks about the experience of implementing what washington d.c. considered the space and wanted to capture the national attention for many reasons, not the least of which is this experience that you're describing this highly politicized issue and implementing it in a space that a lot of folks have started thinking of as red verses blue. i think you have proven that it goes beyond that. i am curious. what role do you think that public opinion aligns public perception that "and "obamacare, what role do you think that plato did not play in kentucky? >> well, obviously the phrase obamacare has been demonized to put it bluntly. when you say obamacare it creates the automatic reaction
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one way or the other. what we did in kentucky, we sort of anticipated that and then the affordable care act passed. we quietly accepted every dollar that the secretary would give us [laughter] to plan and get ready. we were quiet about. we did our planning, and as soon as the supreme court said it was constitutional we announced that we were going to expand medicaid and create our own exchange. leading into that was i went to all of our stakeholders. the kentucky chamber of commerce, hospital association, all of these folks and every one of them said we will have been exchanged warm with the other that gave me a political
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foundation to say we will do our own exchange. we will take these cookie cutter approach from a national standpoint. the coverage decision was the medicaid decision because it is money. eventually money for the states, and you all know the details. but i asked price waterhouse coopers. i said, tell me what this is going to do for us or to us. can we afford to do this because i knew that would be the question. they came back in six months and said, you cannot afford not to do this. [applause] they said this is going to and use about 15 billion into your economy over eight years. you will create 17,000 new jobs. you will have a positive impact on your operating budget of the next eight years, and obviously
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i took that and announced, you know, this is a great business decision. it was also a moral decision. it was the right thing to do, and i had to make sure i had an answer. once we did that we started out in the summer after we got our website altogether and really started an education campaign. i will use one story to illustrate what we started with. we are at our state fair. thousands of people from across the state come to our state fair every august leading to october. we have a booth and are educating people and have decided to call hours connect. there was a fellow standing there being briefed by one of our connectors. she goes through the whole spiel. he looked at her and said, that
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sounds great. that is better than that obamacare. [applause] and one of you, as connectors, as she did, do i tell him? [laughter] she took a moment and said, no. [laughter] you know, we just kept pushing and getting ready. what we ended up doing was convincing kentucky hands, look, i don't like the president, but i have to find out what this is about. we separated debt of as much as we could. they did not hot. they ended up deciding there would find out for themselves. when they found out, and quite honestly it was not the website so much. it was you. we've really pushed personal
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connectors all over the state that caused what most of these people, the reason our website worked well, no bells and whistles. we have to look at who we were going to be dealing with. a lot of those folks did not know much about computers. what they knew was not complicated, so you had to make it simple. we knew that these are folks that had never had insurance and their lives, most of them produced are talking about copays and these kinds of things i have had insurance all of my life and still don't understand all that stuff. i knew what we were facing, and so you folks word the most important link to making it successful because they set out across the table. we got insurance agents qualified. it was people that they developed a trust and that set out and explained what was going on. that ended up really not making its successful.
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taking it out of the political realm, and it has been interesting. last november i was asked to company with a house democratic caucus moaning and groaning about what was happening. getting hammered. look, this is a process. i guarantee next november the discussion will be better than it is this november. you are seeing that transition, some of the worst critics, at once trying to still be against obamacare. it has been interesting. i want to say something, this lady is a hero. [applause]
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i never saw anybody take more undeserved abuse. she took it and made this darn thing work. [applause] and quite honestly i like to say that is what governors are all about. she was a governor. they get things done. you don't have a lot of time to argue about ideology. you have thousands of people depending upon your everyday. when things did not go exactly right she could have pointed fingers. they said, look, we are going to fix this. you know, i am so proud of his lady. [applause] >> one of your comments sets up the next question. you talk to rot your conversation. i am curious.
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you all are believers. as you were undertaking this enormous implementation project, and this is really a jump of question. who did you turn to for advice? what past experience and efforts to do like to inform the decisions you make of in your planning stages but also has fixed income. >> i will jump in on that. it starts with we as an organization have had a great deal of experience in medicare and working closely with government. we are in several states in medicaid managed care. we looked at our experiences in developing programs for special needs populations are different populations, not traditional commercial populations and building products. frankly, we looked closely at
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our actuarial team to make sure we left no stone unturned in understanding the makeup of the population. we started from a point that even though a great number of people across the country signed up it was only about five to 6 percent of our business. we thought that we could price our products to attract people to mantaro on this side of putting programs in place, proactive programs in place in collaboration with the provider community to make people understand that for out reached to stay healthy there are ways to access high-quality care at lower cost. we felt good about that, but it was really thinking on our experience that we had and high-quality government programs , understanding the potential actuarial risk in partnering with government and the provider community to set up products and programs that will educate and help people access care needed.
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>> anyone for advice? >> i will basically turn to everybody, and i mean that seriously. see affordable care act is, first of all, much more comprehensive than the marketplace enrollment. it is a very comprehensive health bill, standing community health centers, work force issues, electronic medical records, lot of delivery system possibilities, the first-ever innovation center, centers for medicare and medicaid, our own are in the applications to look at what works and change protocol says that leaders look at the health care system. providers are a key part of those discussions. what were the best hospital
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systems doing, how can we drive that further? i did have the experience of being the elected insurance commissioner in kansas for eight years. my former colleagues were critical in putting together the framework for the new plans that were going to come into the marketplace. i spend a lot of time with governors that we knew were going to be hugely important, and i have one of my former lives as a governor. members of congress, both advocates and adversaries were important to stay in touch with. some had a little too much, but that was an important constituency. but trying to look across the spectrum of who at the state and local level because at the end of the day the effort would really be about personal out
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reached, personal touches, personal connections. again, i cannot underestimate this amazing role that america has because we are building an organization specifically designed. you have the kind of go to church groups, house leaders and others saying, could you add to your mission this piece of the puzzle? will you spend time and energy. in rural america did this across the country which became an amazing has said. and what you were learning, they did a great job so that we could make strategic decisions out in the field about what worked in did not work, what you were learning to matthew operated. i would say it was really everyone in an ongoing fashion.
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listening to what the critics said, trying to make improvements, we also, the rules and regulations are substantial. we had to write them. the way the framework is, it was three departments. hhs, department of labor, the department of treasury. the fact that we got some out the door in a timely fashion is somewhat remarkable. as you know about regulations, government time. there were a lot of pieces of the puzzle, but i would say it was an all hands on deck approach. at the end of the day reaching across the cabinet which the president did very effectively in saying to a lot of our colleagues, when you travel to the states, when you have an opportunity, you do not lose that opportunity to also look at ways that you can help spread the word. it became a nation that people
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adopted happily to participate in work well. >> i mentioned secretary haynes. behind them were hundreds of folks. i went over to our warehouse on the first day. they had been up all night. they all had smiles on their faces. we approach to midnight and took a deep breath, cross our fingers, and said a prayer. it worked. and these people were invested. they are believers. we are all believers. we were going to make it work. >> that will be the last word. again, i want to ask all of you
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to join me in thanking our incredible panel for being here tonight. [speaking in native tongue] [applause] [applause] [inaudible conversations] >> tomorrow the house energy and commerce committee holds a hearing on defects in gm vehicles believed to be responsible for 12 deaths. a ceo will testify about the recalls and compensation for victims. you can watch it live on at 10:00 a.m. eastern time and comment on the hearing on our facebook page or twitter with the hash tag c-span chad. at 2:00 p.m. a conversation on
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the prisoner exchange involving the release of five terrorist figures from guantanamo bay. live coverage on not >> the thesis of the book is there are a whole group of people in america, a big swath of america that is being ignored, left behind, not included in the discussion, i think, for either party, particularly the republican party. blue-collar conservatives, the folks out there that are working people, most of whom did not have college degrees, folks that really still understand the value of work and the importance of work and responsibility, people who understand the importance of family and faith
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and belief in freedom and limited government. those are conservative republican voters. in many cases they are not. they do not see either party talking about the concerns in trying to create an opportunity for them to live the american dream. >> former pennsylvania senator and presidential candidate rick santorum argues that working americans have been abandoned by can -- political parties. saturday night at 10:00 eastern time part of book tv this weekend on c-span2. this month on our on line but club the forgotten man, a new history of the great depression. start reading and joined others at book tv, television for others -- serious readers. >> president obama was in new york tonight to attend the democratic national committee's lgbt gala.
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the president talked about his administration's record on gay-rights and his recent decision to ban discriminatory hiring practices by federal contractors. [applause] >> i want to thank debbie for the great work she is doing as chair of the dnc. making sure the money goes. [applause] thank-you, henry. thank you for the beautiful performance. jesse, congratulations on both of your weddings.
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they finally tied the knot. it michele and the girls were crying. [applause] other newlyweds year. married a couple of hours ago. they decided to make this there after party. pretty cool. if you have a glass, raise it. a lifetime of health and happiness for them. so, a time for celebration, and this year we have a lot to celebrate. if you think about everything that has happened over the last year it is remarkable. the person you love which includes my home state of hawaii and illinois. [applause]
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the nfl drafted its first openly gay player. get back the u.s. postal service made history by putting an openly gay person on a stamp. [silence] / back ten years ago. it no single issue divided our country more. in fact, the republican party build their entire strategy for 2004 around this issue. they calculated banning gay marriage and turned out more voters and win and frankly were right. people flocked to the polls. the amendments were on the balance in seven states and passed in everyone. here is a good bet, they will
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not try the same strategy in 2014. [applause] only two states had marriage equality. today 19 states and the district of columbia do. court rulings are pending in other states as well. [applause] and despite the great work of incredibly talented and courageous lawyers it is important to understand that it is not just the laws that are changing. it is hearts and minds. conventional wisdom says this change is due to young people growing up with different attitudes than their parents and grandparents. anyone who has kids knows that there is truth to that. the basic attitude is, i'm sorry, what is it you are talking about here? what is the big deal?
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what has been remarkable is the way americans of all age groups are increasingly embracing marriage quality. they understand that love is love. love for the child, a grandchild , a co-worker who sat down one day and held their hands and took a deep breath and said, i am gay. almost everyone in this room was that child or grandchild of friend or co-worker at some point. you may not have known it at the time. may have seemed like an individual act, but in those moments when you some and that courage and reached out with that hopeful of you were doing it for everybody which is why i am here tonight to said they do for helping make america more just and compassionate. [applause]
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i want to think the incredible friends in the room for their support and guidance that some many have offered my administration of the past five and a half years. sometimes you were a little impatient. sometimes i had to say, will you just settle down for a second? we have got this. but because of your help we have been able to do more to protect the rights of lesbian, gay, transsexual americans than any administration in history. [applause] we repealed the don't ask don't tell because no one should have to hive who you have to serve
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the country we love. we've reauthorize the violence against women act and signed a hate act because hate-driven violence has taken the lives of too many in this country. [applause] i lifted the 22-year ban on people traveling in the u.s. and prohibited discrimination -- [applause] -- primitive discrimination in hospitals that receive federal funding because fear has no place in our laws. we made it illegal for health insurance to provide coverage to people based on that sexual orientation or gender identity. [applause] starting next year, insurance companies that offer coverage to straight couples have to offer
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it to gay couples, too. [applause] we worked to address and prevent bullying. we have to make it better. and -- [applause] today the senate confirmed to openly gay judges on the same date. [applause] before i came there was only one openly gay judge in history. today we have ten more. as i said in my second inaugural address, if we are truly created equal then surely the love we commit to one another must be full as well which is why we stopped defending the so-called defensive marriage act in the courts and argued along side the last court and why we are working to implement the court's rulings on married same-sex
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couples wherever possible. people have been waiting a long time for justice, and we are working to deliver on it as fast as we can. we have good reasons to celebrate. that does not mean we can go complacent. progress does not just have to be thoughtful but defended. today our lawmakers tried to ban all marriages. that seems a little over the top, but that is just my opinion. [laughter] that texas republican party says the platform supports the conversion therapy. legal fights are under way from preventing expansion any further most of all there are americans out there who are vulnerable and alone and need our support.
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we cannot stop. we have to keep fighting. we have to keep fighting for the human rights of people run the world, those to face violence and intimidation every day and live under governments that have made the existence of anyone who is lgbt is legal. we need to send a message to those folks. we believe in dignity and equality, and the united states stands with you. [applause] [applause] and we have to keep fighting to protect the rights of our brothers and sisters here at home. last week to get the chance to watch the film version of the normal heart and actually called brian murphy after words to say how much i admired him.
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it is a reminder that we have sent have discipline in the fight against hiv aids which still claims the lives of so many americans, especially low-income americans. [applause] especially the minority lgbt community that does not have all the resources come all the deprivation in need. it still takes its toll. i know that many people in this room have photographs with smiling france from days gone by a lot of those friends are gone taken before they're time because of a disease and there was a government that fail to recognize that disease in time, and that can happen again if we are not careful. [applause] that is why my administration created the first comprehensive national hiv aids strategy and is why we are working toward an
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aids-free generations of fewer people have some of the pain of this disease in our country does not have to lose any more sons and daughters. we have to keep fighting for equality in the workplace. right now there are more states with laws were same-sex marriage than laws that prohibit discrimination against lgbt workers. think about that. laws this the americans cannot be fired from their job because of the color of their skin, religion, disability, but every day millions of americans go to work knowing they could lose their jobs not because of anything they did but because who they are. that is not right. it is wrong. our congress has been considering legislation to protect lgbt workers for decades i want you to understand, for decades. last november it finally looked like we were getting somewhere.
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the senate passed an act with strong bipartisan support. at shockingly enough the house refused to act. meanwhile, millions of americans are still waiting. decades. the majority of fortune 500 companies, small businesses already have nondiscrimination policies to protect their employees because it helps them attract and retain the best talent. they are right. we do not benefit as a country or an economy. businesses do not benefit if they're leaving talent off the field. that is why i directed myself to prepare for my signature an executive order prohibiting discrimination by federal contractors on the basis of sexual orientation and gender identity. [applause]
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[applause] because -- [applause] because in the united states of america who you are and who you love should not be a punishable offense. it would be better if congress passed more comprehensive laws that did not just cover comprehensive law makers. don't take the pressure of congress. this seems to be a pattern in these days. everyone has given up so much on congress.
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we end up doing something through executive order. and that is helpful, but it does not reach everybody that needs to be reached. congress needs to start working again. let's make sure we keep the pressure representative. this is a country where no matter who you are, what you looked like, how you can not, your last name is, you love, if you work hard, take responsibility, you should be able to make it. that is the story of america, the story of this movement. people who stand up and come out and march and organize and expand the rights we enjoy and extend them to other people, people who work against the odds to build a nation in which no one is a second-class citizen and everyone is free to be the they are and you are judged based upon how you are kind and competence and were carted and treat each other with respect
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and are a team player and look after your community and care and love and cherish our kids. that is how we are supposed to be judged. that is what brought us here today and made it possible for me to stand here as your president. it is what gave many people and this room the freedom to live their lives free the -- really and what should inspire us to keep working to make sure all of our children grow up in an amera where differences are respected and celebrated and where love is love. and it is also why those of us who in the past might have not always enjoyed the full liberty that this amazing country of ours has to offer, but we have to be thinking about others who are still struggling. that is why this community has
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to be just as concerned about poor children regardless of sexual orientation. [applause] that is why this community should be fighting for workers who are not getting paid a minimum wage that is high enough and this community has to show compassion for the illegal immigrant who is contributing to our society and has the chance to move out of the shadows. why this community should be concerned about equal pay, equal work. [applause] that is why this community has to be concerned about the remaining prestige of the brinks of discrimination. if you have experienced being on the outside you have to be one to bring more folks and, even once you are inside. [applause] that is our job. that is why we are here tonight.
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thank-you. got bless you. caught bless america. ♪ [applause] >> coming up on c-span2, a hearing on high-speed trading and operations of the financial markets. former health and human services secretary kathleen sebelius talks about implementing the affordable care act. the international monetary fund gives its u.s. economic forecast and secretary of state talks about protecting the health of the oceans. >> former iraqi administrator paul bremer wrote in the "wall street journal" recently about the possibility of sending more u.s. troops to iraq and will join us. he will also talk to congress
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woman or ride a sanchez about options in iraq. >> the idea behind it to 50250 is instead of trying to tell the entire history we would absolutely ms. vitally important things. instead of trying to do that and failing we decided to give snapshots of history from st. st. louis that would give people a glimpse of all of the diverse things that have happened here, and they can use their
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imagination to fill in the rest. we try to choose the most diverse selection as we possibly could. we are standing in the exhibit right now, and this is what most people would call the real history where the object is right in front of you. it really is such a huge part of st. louis history, an amazing story with lots of different stories. the most famous, anheuser-busch, the largest in the world. in the era of anheuser-busch, millions of barrels each year. producing so much birr, an era when things were a little bit simpler. a fine to show people this object and takes their response. someone had to sit on this thing
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and do it by hand. it has foot pedals on the bottom where the operator would push down with his feet to give the court enough force to go into the bottle. it has three holes for three different sized bottles. >> the history and literary life of san louis, the gateway to the west on a c-span2 book tv and american history tv. >> on health today a critic of high-speed trading and other practices of wall street firms said that u.s. financial markets are rate. this ceo of an alternative stock market exchange. executives from the new york stock exchange and major brokerage firms defend wall street practices. two hours and 45 minutes.
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>> good morning, everybody. america's image of the u.s. stock market is shaped by a single room, the trading floor of the u.s. stock exchange where traders await a ceremonial bell to kick off the day's activity and trade shares worth millions on scraps of paper. in reality those shares are traded not on a floor in manhattan but in the racks of computer servers in new jersey. trades happen not at this speed of the human scribbling on paper but in the millisecond's it takes for in order to travel through this fiber-optic cable. increasingly the money made comes not from the really assessing companies for investment potential much from
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exploiting the infinitesimal advantages at unfathomable speeds earning billions of price differences measured in pennies. we are in the era of high-speed trading. i am troubled, as are many, by some high marks. an era of market instability. as we saw in the 2010 flash crash which this subcommittee and the senate banking committee explored in a joint hearing and several market disruptions sense that. an era in which stock market players by their right to locate their trading computers closer and closer to the computers of stock exchanges conferring a minuscule speed advantage yielding massive profits. an era in which millions of trade orders are placed and then
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canceled any single second, raising the question of whether much of what we call market is, in fact, an illusion. many, including the -- including this senator, question whether the rise of high-speed trading is overall a good thing for markets and investors. without question this era has seen a rise of conflicts of interest. these will be mine but -- my focus today. others may focus on this or other aspects of high-speed trading. new technology should not erase enduring value. financial markets cannot survive on technology alone. they require a much over concept. trust. the trust is eroding. conflicts of interest damaging markets first by depriving investors of the certainty that the brokers are placing the
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interest of clients first and foremost and by feeding a growing belief that the markets are simply not fair. in fact, polling shows roughly two-thirds of americans believe the stock market unfairly benefits some at the expense of others. his distrust may be a factor in the fact that it just over half of americans according to a gallup survey released this year on stock or mutual funds which is down from more than two-thirds of americans who own stock or mutual funds. that lack of faith has allowed the festering and growth of undermining an important purpose of stock markets to efficiently raise capital for businesses to grow, create new jobs, and at to america's prosperity. in previous hearings and investigations this subcommittee
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has shown that our financial markets have become plagued by conflicts of interest. we have uncovered investment banks willing to create securities based on junk assets, taught them to clients and bad against those same securities making a fortune at the expense of clients. multiple parties, complex technology and an ever increasing number of order types and payment arrangements.
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retail brokers like the ones found in main street offices across the country and on tv ad for ties meant, wholesale brokers to buy orders for retail brokers and dozens of trading venues shares are bought and sold. most americans know the new york stock exchange, but there are now 11 public exchanges plus more than 40 alternative trading venues including dark pools which are in essentially private exchanges run by financial institutions. that complex structure has emerged and so have a number of conflicts of interest. i will focus on to. the first conflict occurs when a retail broker choose is a wholesale broker to execute trades. the second occurs when a broker acting on behalf of either a ricercare or an institutional
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investor that manages pension funds and retirement accounts chooses a trading venue, often a public exchange, to executed trade. at both of these decision points the party making the decision should only be influenced by the best interest of the investor. that is what ethics demands and what the law requires. but there is another factor in place. both decision points, the current structure gives brokers an incentive to place their own interest ahead of the interest of their clients. here is how. the first conflict illustrated in that chart occurs when the retail brokers receive payments from wholesale brokers for their orders. this money, known as payment for order flow can add up to untold
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millions, and almost every retail broker keeps these payments rather than passing them on to clients. their reasons wholesale brokers are willing to pay for order flow are complex. the one big one is that wholesale brokers can fill many of those orders out of their own inventory and profit from the trade, a practice known as internalizing. the second conflict shown on the second chart arises when a broker decides to use a public trading venue and then chooses which menu it will send orders to for execution. under what is known as the maker taker arrangement there is an incentive for the broker to choose that trading venue based on the broker financial interest rather than the client. now, maker taker can be complicated, but here is a
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simplified explanation. when a broker makes an offer on an exchange the buyer sells a stock dan hilferty price. the broker is classified as a maker command must exchanges will pay the broker or rebate when that offer to buy or sell is excepted. a broker who accepts an offer to buy or sell is called a taker and will generally pay a fee to the trading venue. the important thing to remember is that brokers by maximizing maker rebates and avoiding takers fees can add millions of dollars to their bottom line, giving them a powerful incentive to send the order to the trading venue that is in their best interest, even if it is not in
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their clients' best interest. he is significant that earlier this year speculation that regulators were considering restrictions on payment for order flow since shares of brokerage firms significantly lower. obviously there is lot of money at stake in preserving these conflicts of interest. even if firms disclose these payments, disclosure it does not excuse them from their legal and ethical obligations to clients. their legal obligation is to provide clients with what is known as best execution. whether they are meeting that obligation is a subjective judgments. the outcome of this subjective judgment affects the way tens of millions of trades are executed.
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now, some who profit from these payments argue that seeking this revenue does not interfere with their obligation to seek best execution. however, one of our witnesses today has done research indicating that when given a choice for a leading retail brokers send their orders to the markets offering the biggest rebates at every opportunity. the research further suggests that exchanges offering the highest rebates do not, in fact, offer the best execution for clients. these brokers argue that they can pocket these rebates while still meeting obligations to provide clients with best execution. are they make a subjective judgment as to which trading
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venue provides best execution, tens of millions of trades per year, that subjective judgments always just happens to also result in the biggest payment for brokerages. i find it hard to believe that this is a coincidence. many market participants are worried about the conflicts of interest and benefit in the current market structure. in addition to the professor today's first panel will include the president and ceo of iex and eight prominent wall street adage for market reform. our second panel will include four witnesses.
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the next person is of that global market which operates exchanges that compete with the new york stock exchange and has a different view. the third witness on the second panel is of vanguard group, a major find it -- mutual fund company that has expressed concerns about these conflicts. the fourth witness in this second panel is from t d ameritrade, a retail broker that derives significant revenue from payment for order flow from wholesale brokers and rebates that they receive from exchanges the duty of lawmakers and financial regulators is to look
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out for the interest of investors and the wider public. there is significant evidence that these conflicts can damage retirement savings, pension holdings, and other investments upon which americans rely, and even americans without a single share of stock or mutual fund account have something as stake because stock markets exist to foster investment, growth command job creation. conflicts of interest jeopardize that a vital function. americans do not shy from innovation or technology. indeed, we embrace them. americans are understandably suspicious when technology can be turned against them and their families' financial interest. rightly concerned when technology and innovation are used to undermine basic enduring principles such as trust and
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duty to a client. our goal is to enhance the protection of investors in our free markets by promoting those enduring values. i want to thank senator mccain and his staff for their close cooperation in this matter as has always been the case. center. >> thank you very much, mr. mr. chairman. i think this is an important hearing, and i appreciate the hard work that you and your excellent staff have done on a. i want to think the witnesses for being here today. the public knew very little about high-frequency trading. important questions were raised. is the stock market rigged by unethical high-speed traders with fast access to market information, advanced technology and sophisticated trading algorithms?
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is high-frequency trading adding cost for other traders without contributing value to the market ? will stock markets face another flash crash like in 2010 when the dow jones temporarily lost $1 trillion of market value in 20 minutes. these concerns have fuelled suspicions that wall street may well have become the ultimate insider scheme or is the average investor can no longer meaningfully participate. consumers see firms that can make trades in a fraction of the second using cutting edge technology and wonder if the stock exchange is still a place where their interest matters. hopefully this will set light on high-frequency trading practices and help restore confidence in our financial system. the subcommittee involved as
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many participants. while the problems facing the market are complex, we can address them with a few common-sense solutions. for example, one of the most predatory high-frequency trading practices depends upon unintended consequences of the sec regulatory national market system. that regulation is essentially mandated that investment firms must buy or sell stocks had the best price available. while that might sound like a reasonable requirement, high-frequency trading firms can take the advantage of the rule by putting out offers to buy or sell small amounts of stock at attractive prices. when a large investor seeking to make a big order accepts the high-frequency trading firm offer because it is the best price available the high-frequency trader can predict that a large investor
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will have to go to another exchange to purchase the rest of its order. the high-frequency trader can then raced ahead of that investor, buy up all available shares and sell them to a large investor and a higher price. changing so that investment firms are no longer legally required to take high-frequency trader bait is an eerily, clear, first step to cleaning a practices. another key tactic is co location. this practice involves trading firms literally renting space for computers in the same room as computers that run the stock exchanges so that they can receive market information the directly from exchange computers as fast as possible. investors that do not buy this to read dick's chest exchange
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received market data via a government-established system using out of date technology called the securities information processor which compiles market data much more slowly . as experts said, there is no reason why public data feeds cannot be improved so that they are effectively as fast as private data acquired through private echolocation. updating technology is another helpful measure that can be quickly adopted to shore up consumer confidence. in addition to high-frequency trading / boys described how stock exchanges often pay rebates as was pointed out to stop brokers and entice them to trade on exchanges. those rebates called a maker taker payments create an apparent conflict of interest
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for stockbrokers who must choose between sending plane orders to exchanges offering higher rebates or exchanges that would fill orders as quickly as possible. while many firms argue they sperm market activity and reduce costs for consumers, some have argued that these benefits are minimal and investors are harmed by brokers conflict of interest. the subcommittee has found that there is a lack of publicly available data regarding maker taker payments leading to difficulties in determining whether the payments actually have an adverse effect on the market. a logical first step would be to have more transparency allowing neutral researchers to study the issue in greater detail. i hope this will educate the public about high-frequency trading and brokerage conflict of interest and i hope as a result of this hearing in the information we obtain from
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expert witnesses that action will be taken to restore confidence which has clearly been eroded in recent months since the publication of the book by michael lewis. thank you. >> thank you very much. >> thank you, mr. chairman. a very interesting. both german levin and senator mccain mentioned the word complex, and there is no doubt about what is happening with trading is highly complex. from my standpoint having been an individual investor the primary solution is an increased transparency so we understand what is happening. because it is complex it is difficult to fully understand. i am hoping there will lay out the situation and an individual investor who has bought stock for decades, the competition has increased in the marketplace.
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i used to have to pay hundreds of dollars to buy 100 shares of stock. i hope that this hearing conveys exactly what is happening, what benefits have come to consumers over the years, what dangers may be of there, but the bottom line is this hearing should be about restoring confidence. the best way to ensure confidence, the best way to ensure best price is through competition and transparency. i am hoping that is what this hearing reveals. i want to thank all of the witnesses and am looking for to testimony. >> thank you. we now call our first panel of witnesses for this morning's hearing.
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i appreciate you being with us this morning, and we look forward to your testimony pursuant to rule six all witnesses to testify are required to be sworn. at this time i ask you to stand and raise your right hand. do you swear the testimony you are about to give before this subcommittee will be the truth, the whole truth, and nothing but the truth so help you got? we will be using a timing system today. please be aware one minute before the red light you will see the light changed from green to yellow giving you an opportunity to conclude your remarks. your written testimony will be
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printed in the record in its entirety, and we ask you try to limit your oral testimony to five minutes. professor, we will have you go first. thank you for coming. >> good morning. thank you for inviting me to testify today. it is an honor to present my views. my expertise. before discussing my current research i would like to provide a bit of context. orders used by retail investors can be broadly categorized into two categories, investors who want tough by quickly. these demand liquidity. investors are willing to buy or sell stock use non marketable or
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standing orders to express trading interest. non marketable orders do not immediately execute. exchanges use electronic order books to keep track and typically use price time priority to determine which trades. the non marketable orders make or supply of liquidity for other market participants. several exchanges use liquidity rebates. it is paid to an investor or broker when the non marketable water trades. to find rebates the same exchange take a fee when they trade with non marketable orders. as a result exchanges tend tat charge high take fees, and those offering low rates tend to take low fees. incentives created by that maker
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taker will tend to be first round to venues with lote take fees -- low take fees. as a result non marketable orders are likely to trade last and thus can miss out on profitable trading opportunities this suggests the likelihood that non marketable order trade is lowest on the exchange. brokers must take into account differences in the likelihood of execution while determining where to route non marketable orders and must not allow inducements. the conflict of interest may take fee schedules from the fact that most brokers don't pass these rebates directly but in state charge fixed commission rates. thus while investors prefer their order be routed to the
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vendor offering enhanced possibility of trade the vendor may offer to the highest liquidity rate. it may seem bad economics and incentive should align incentives, however this alignment incentive is hampered by an agency problem. brokers may be able to charge lower commissions. if investors choose brokers based primarily on commissions because they lack sophistication or necessary information to evaluate execution quality they may be profit maximizing when deciding whether or not they are not marketable orders. investors whose orders do not receive the benefit of lower commission. we examined to issues, exploring whether they're rounding decisions of retail brokers presenting evidence for statistic filings of four popular brokers in a manner consistent with menem --
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maximizing rebates. our statistics differ from subs six when statistics filings. after establishing the rebates will next analyzed the relationship between rebates and execution of quality concluding the likelihood and conditions on which non marketable orders trade. a proprietary data set represent one-half percent of volume and publicly available data it contains all trades. as hypothesized, we find non marketable orders are more likely to trade, trade faster, and suffered less diverse action our results suggest when deciding whether non marketable orders situations frequently arise in which brokers must decide whether to maximize the
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likelihood of an execution or rebates. thank you for the opportunity to discuss our research. >> thank you very much. >> thank you for the opportunity to participate in this hearing. i am the president and ceo of finance group. i am operating in alternative trading system for u.s. equities . the premise of institutionalizing fairness through the use of technology and offering a balance. i believe strongly in market responsibility to ensure just and equitable principles of trade. with that in mind i have deliberately sought to build a platform that would eliminate
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conflict of interest. mutual funds, hedge funds, individuals, but only registered broker-dealers. we do not pay rebates and as a result have a limited number. i instituted a time off for applying to all trading participants. direct market data feed from all exchanges. the first to publicly publish our confidential etf in an effort to promote transparency. important to recognize it was created within the current regulatory framework consistent with allowing for innovative free-market solutions to re-emerge. participants can now trade faster than the past.
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we believe this is due to the inevitable improvement that technology has delivered the. despite benefits the u.s. equity markets are also far from perfect, and these imperfections are the reason we started and i am sitting here today. the number of independent equity destinations each having their own unique technology, parks and pricing schedule creates a tremendous amount of complexity combined with a lack of clear exposure has created structural inefficiencies which allow unfair advantages and disadvantages and has put the health and stability of the overall market at risk without contributing to the core function. there are four main conflicts of interest.
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brokers have perverse incentives many high-quality studies have demonstrated the direct relationship between a broker attempting to harvest rebates and substitution quality. we can confirm these findings. second, to avoid hi-fi's many of the largest brokers created their own private dark pools. in the process they isolated client orders. many of these are interconnected at times brokers are unwilling to route orders to other pools to avoid improving performance of a competitor even though it may be in their clients' best interest. trading venues naturally seek to maximize profits by increasing trading volume and as a result there are predatory trading practices left unattended. markets that offer, location and
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different speeds of connectivity have a direct conflict in the process garnered from selling services verses structural inefficiencies created when the same product unable a participant to trade faster than the market itself. to the detriment of many participants relies on the market. ..
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>> >> and which issues are better dressed for friedrich's solutions. i asked the recent statement '' the secondary market taxes for investors and public companies and their interest. the financial services work don't forget when it works in the first place. >> thank-you very much. let's try the first-round of eight minutes of that is all right and as many routes as we need. that is true with both panels we have four votes saugh that will begin at 11:00 i will stay here through the first two votes
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as plant and will miss those but others can go as they wish. mr. battalio, let's talk about the non marketable immediate match for liquidity. under the maker taker pricing most exchanges will pay brokers for sending them on marketable orders. so far? >> very good. >> some send all non marketable orders to exchanges that they? finigan also appears to be true.
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focused on liquidity rebates. how often did those retail brokers have non marketable orders two-tier exchange offering the highest rebate? to make three iodophor -- three out of four, they are not good enough to extinguish between those limit orders but based on the assumption that is solid three out of four limit those to pay for order flow or chew know where else. >> the high seat venue?
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>> when it comes to order flow they go to a brokerage generally? >> in they are paid for that. >> yes, sir. >> they always go to the high rebates exchange if they are not marketable. >> yes, sir,. >> that decision to have nonmarket of all quarters to pay the highest rebate was consistent with their brokers obligation to obtain best execution of the customers' orders. this now quotes from your paper. the results of our analysis suggest that all non marketable orders to a single exchange offers the highest liquidity rebates is it consistent with
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maximizing execution the quality. is that correct? >> yes, sir. >> is says to uses seeing gold pineal does -- the venue is not consistent with the objective with the best execution. >> yes. >> that is the reason why but nonetheless. is that evidence of a conflict that harms consumers? >> we think it could be done better. yes. >> is that the evidence of a conflict that could harm consumers? >> yes. of. >> and the data shows and the conclusion shows the
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highest rebates and best execution do not go together >> yes, sir. in certain circumstances. not always a. >> is that most circumstances where the orders are routed to the exchange? >> in the most actively traded stocks that is where matters the most. >> is that true what i just said? >> yes. now i expect some of the retail brokers name didn't professor battalio paper:claim they directed all on marketable orders to the shades that pays the most is not inconsistent with specs one dash best execution but what is your view of that? >> from a practitioner
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standpoint at a large broker dealer to ways to look at it the exchange those that post liquidity of the bid one to the rebate some more people will live up. seconds, getting in the along this line will with of probability because more people otterhound in for interview. wearing is the seller most likely to go? >> that either pays them a fee or to attempt for those who charge the highest fees so the highest rebates venue exposes you to do larger compensation and the least
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likely venue because the seller is not to go there first. we run a series of test when i was that our b.c. and they confined to of one dash confirm the findings professor battalio had in his papers. >> repeat that in your words. >> yes. that rowdiness specifically with the coal to maximize the rebate lowers the probability to be field -- filled with poor execution quality for the order. >> does that create a conflict of interest? >> yes. >> i would just go back to
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professor battalio for a moment. is best execution a subjective determination. >> but with the standing orders it seems that the cave across the nasdaq after be submitted this draft we will use that wes best execution for non marketable the midst. >> but is there subjective factors? >> you push the of bounds. i cannot answer. >> is there a subjective factors to determine which market to go to with the
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orders that are not marketable? >> sure. at times there are. if you've established a new price bidding on the exchange with the higher rebate and it is a justifiable. those of have multiple exchanges then that is the conflict. >> are there is subjective factors? >> yes based what is currently on the bid would be determined by the stock so there are factors with the broker looking to get a
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rebate not necessarily in conflict with a duty to their client. it is conditional based on the conditions of the stock on what is happening there are different "decision points" when you could get the highest rebate but also serve the client's interest. >> mr. chairman, i hear terms adverse execrate want execution quality of sounds sinister but i want to put this into perspective 100 shares placing that with of broker costing you $10 so basically you buy $2,000 worth of stock 20 years ago
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i would pay commission but now we pay 10. if this goes into a dark pool or the make or take arrangements how much additional money would it cost the consumer? if routed to a situation of the higher maker taker. >> if there are two orders this is the bohai venue only one trade one will trade in the price will rise. which one? >> how many times and then it goes up that 20? if i put it in the trade that this is worth $20 a share. to get that executed $20?
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>> others have done studies says the big problem. lady to have the data that we don't have. so goldman sachs that there is five basis points. >> but i am talking about retail investor rissole five by 100 shares of co pay $2,000. i will get that at 20 bucks if i put in the order that i want to buy that at $20 i get it at $20. >> no. you will cancel to chase the market up. that is the point civic i cannot i remember of a trade that i want to buy 100 shares at $20 because i put on the stop-loss italy put
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it at $20 civic your trading politesse stocks. that is my answer. >> but i am trying to forget the price move but just the dollar value of $2,000 trade how much is the maker taker me on 100 shares of stock $20 a share? victory cents per 100 shares >> if there is the maker taker me that is outrageous to make the maximum is $0.30 for every 100 shares. >> on the $2,000 trade the conflict of interest the broker will push its to where he gets $0.30?
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what is the range of pricing for 100 shares? >> it is all per hundred. >> you have a maximum range of $0.40 if i do to thousand dollars trade you are concerned about a conflict of interest taipei and additional $0.40? is that but this is about? >> you assumption that you trade is wrong step mccammon eight times to people not to get to a trade? to make the difference is 25%. there are reports since 2010 highlighting the stocks that has a huge impact whether or not they trade at a price. >> how much of that is the institutional investor with the standard retail guy.w%1]umy
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[laughter] >> we are here to speak to investors that wanted to buy it than dening get to. >> but i'm trying to figure out how often that is systemic with better data i could answer that as big as 25 percent difference. >> i am concerned to have a
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sister atmosphere literally what we're talking about is 30 or $0.40 on the $2,000 trade on. we're talking about miniscule amounts. i am looking as overtime with investing my cost of the trade from hundreds of dollars down at $10 novi argue it is $10.30? i am just trying to put into perspective where is the problem of government regulation and intervention to let the free market competitive system drive transparency and that as on dash is what has happened from my standpoint more transparent and a lot cheaper. i will be back.
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>> do you want to give a more elaborate response? that this hearing does not matter simic i will respond to that. the fact it is $0.30 for 100 shares i think that is the point to talk about conflict therein is evidence that brokers get to this $0.30 it could go on both sides it could be viewed as trivial was a trivial nature why does he do that and the first place if he represents a $2,000 trade? even though the authority is diffuse there are more retail investors investing in large pension funds and mutual funds.
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so to say it is a small amount could be used is the principal based argument also costs have come down and technology has delivered that. i saw harvard business review study entitled how to win the of price for with the extraordinary low brokerage service of $30 down at $15 down at $8 and was written in 2000 will cap the cost of technology falling even further. it is one where the competitive forces set the price is but the inducement is so great every exchange pays the exchange rebate if
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people are so incentivize they will lose market share. look debt payments there is a known conflict than just address it. >> with that increase of technology has that facilitated as well? >> the advance of technology harnessed by certain participants that part there is nothing wrong with that. the challenge the market was faced with was one of the biggest confusion sell there is those that pay for the sir news one dash servers as the unfair vantage.
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>> i think that is the key. this made this level playing field whether $0.30. >> in order for the person at home to be disadvantaged on high-speed technology they have touche trade has to happen on the market the market's responsibility is knowing that different parties have different access to technology bow with the trade happens the condition is fair. we have no bias one way or another. the market itself should have a chance to its own technology that maintains
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the fairness people got into the business of selling technology to enable participants and as that happened the conditions for fair trading change when the participants understand the market that creates a significant situation that we believe is unfair. >> many commentators including "the wall street journal" have noted that it has enabled llord enabled many trading practices. to you think that should be reformed and if so what would you recommend? >> the spirit as was indicated make sense with multiple competitive markets
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to tie them together. if you eliminate the conflict that brokers have invested heavily in technology we had this problem in 2007 for your 2009 and solve the problem so friedrich's solutions it runs the risk of further unintended consequences. it is something that warrants review but it depends on what regulation comes out and that is something i cannot comment. >> do you have any suggestions professor battalio? >> to a with the pilot study and study it very carefully. >> do you have the other solutions.
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>> with high-frequency trading i have not extensively studied. no. >> with the 60 minutes interview to say the stock market is rigged to come is that the accurate description? >> we have discovered investors are systematically disadvantaged. rigged to is the word used to describe that. but it describes the investment process is not broken i'm still an investor in the market. blighted did was give critics or people of part of the problem to talk about something else other than
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the more precise way to put it which is the systematic disadvantage and how they were created it was the destruction which was unfortunate in the interesting part is those who took most defense to the word were the people on wall street we have a tendency to talk to ourselves and that response we have seen the claim that we heard to investor confidence every day we have seen would be the opposite with the terms of the general public for what we have said or what we have done. >> with:location how do you address something like that? somebody rinceau place or a computer? they are free to do that.
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that is america. >> how are you address that issue since it seems to be one of the facilitating aspects of this system? >> you cannot regulate and cottage industries will pop up them by real estate across the street so it is every market choice to decide how they apply to set the market up we have introduced almost the opposite with lindsay between us and all customers that means we coil 38 miles of cable to do that for all participants. >> but what is the remedy?
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>> we keep on transparency and a disclosure in an end to. >> braddish shed be disclosed if they colocate. >> it should be but anonymous listings of participants mating does ever present 50 percent of your trading volume? if they do do they represent 50 percent on every other market? that would indicate something or the of the century to -- the message rate. as it professor battalio said real lack the data. from talking in the industry but the sec web site we learned a lot with 52 attempts with clearer
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understanding we could learn so much more. with echolocation to discuss aaron understand five or 10 seconds away you get information and quickly you can react quickly as we push that boundary further out we found we have high-frequency traders to show up but the number of the house was small. it was three there are dozens of firms have decided not to connect i cannot speculate the we have taken away something they thought was viable solution is every markets to raise it is a hard practice to regulate but with increased disclosure people can make better decisions if they offer services. >> to make references to
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disclosure of co-location but the best exhortation one dash execution it cannot wait? >> best execution it might need further refinement. it is pretty subjective to be used fairly liberal and of one thing in. >> that is a legal obligation? >> its is. >> you cannot disclose? >> that does not fly? >> no. >> going back to best execution? >> who determines best execution for a vote? >> the broker himself?
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>> could do be done better? >> could do this is the broker. >> and i do believe that you indicated it creates a conflict of interest that this is a significant matter. let me just ask q. should the maker take system be averted? >> steps should be taken into a happens the pilot study has been proposed. spinet that eliminates? >> it should be given a chance to eliminate maker taker does not harm the quality of the market's.
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so that should be taken and analyzed. >> at least that steps. >> i am not a risk taker i of the academic because he may push things underground to so is less able to see what people are doing some of our view is bush disclosure back to the broker so is easier to tell but to map how is your broker doing to take tougher steps we thank you could do a better job of that now. >> if you insist. >> others are and i agree. >> some of the maker taker
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is beneficial meeting to lower spreads that that was technology that did that? to make yes. they both contributed. >> in terms that do you make a similar event distinction that some high-frequency trading may be predatory? >> not all high-frequency trading is predatory but some are. >> you make the distinguished -- the distinction so maybe predatory? >> let could affect investors but as the maker taker system has more complex order types? >> is that create the
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opportunities for predatory traders to take advantage? >> at times. >> what kind of opportunity? >> i take given in the structure a quick example is if there are 10,000 shares to sell intel at $21 a share , high-frequency trading could be offering across multiple markets. one of those live be dead taker maker venue that charges of one to post liquidity than post of the bay of the other side. so with the inducement the broker follows that a and causes them to remove liquidity in a predictable
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and systematic way to work its way down to church the highest fee. that leads to an overfill of rates and execution. added say combination of technologies and inducements and brokers. that is a series of defense. >> you have been quoted that americans have lost interest and you are charging a standard fee based on their interest whether or not it adds to reduce liquidity to increase investors' confidence. >> it is a step. i actually charge a flat fee regardless if you are making or taking.
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it is hard to regulate so that is acceptable all but eliminating the conflict most of the general public tonight even know that did exist. into freakin that trust -- and it to be gave that trust is a way to restore that confidence that will help to restore confidence torrey step in the right direction. >> without question helps the confidence. >> critics of your paper said the red teide if you use to get best execution to have typical flow to judge
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that best execution. how low do you respond to that? >> the critics dick nor were we have all trades or'' says in the u.s. market you demonstrate the results with limited data generalized for the market players. as we pushed the paper around reread the of major exchange that shows us those retail orders they get the same results we get. sandra bernstein the same results. you could argue the most detailed analysis is specialized data but we are quite comfortable. >> would gb willing to run your analysis that is
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identified in your paper? >> of course. anybody. the hard part for the academically asked for data over two years. it is very hard it is a standing offer. we thought we could work with a guy who's starts to deuces with institutions but unfortunately the azeris side pushes back that if he shares teide then they will stop doing business so it isn't very hard to kick the analysis. we were very lucky. you have to have a strong response to the orders that are not thrilled.
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and -- filled. you have a strong answer to that as well. with hundreds of millions of dollars for the broker? >> compare the payments revenue and you will see a market difference. >> it is a big revenue source for the brokers. >> yes. some end up paying for up hi-fi's and that high take be subsidizes pavements so some are hurt worse than some benefit. >> i have more time and i want to explore what is happening. >> talking about a $0.25 to
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trades that are not executing but what is being missed? are urged those physically because people put stock orders set this prize? that does that work? for my people that may be placed the order. evicted it is a student in order. but we identify in the paper pacifica some of the press but said it is true of large could some stocks are much less follow ohio but some
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don't put date miss out progress if they traded moves up if they don't trade >> part of the problem is some investors have a lot of time to watch this and in realtime. most investors like ms. self like once a year. that is the case. if you are watching this with the right type of order can you make sure you get that stock purchase bill matter what? did not if all the interest does not trade no. because of the way they route they put you at the back of the line for aid price all the time of the line does not fully exhaust you will go wanting.
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all stocks all the time? no. measurable time were 20% 20%, yes stick i am trying to get my head around the magnitude of this problem because we use the sinister figures and by a greek this of restoring confidence in the market in to throw out those types of terms to make it seem like everybody is in this business to speak to the individual retail investor that is not what i have seen. but it just seems we are moving in the right direction in greater competition, lower prices it is far easier trading today where you call the broker not knowing what is going on now you can plug in the computer.
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right now it is almost instantaneous with the market order. >> for the market order. yes. we have made great gains we're not crying fire in a theater if you read the paper carefully believe point out where only to the venue would be a of a disadvantage likely have a sophisticated routing technology how can that be? that is what got us interested as academics. >> you may not shout fire but the way it is reported in the press i think it is. do you disagree? mimics some people are. >> that is what i appreciate to lay out the situation to
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lay out prospective. but it to the overall dollar value of these maker taker will relationships with total trades in the i want to and then have a historical perspective how much commissions there were. >> al will give you one statistic. if you eliminated all the rebates research predicts one broker could have a 16% earnings per share declined. that is realtime. >> no question that price per trade has come down and i read this last time that the harvard business review report entitled how to win
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the price war that they're changing the competitive trade with the low price brokerage service the prevailing price has fallen from $30 down at 15 downing eight and that report was written in the year 2000. now is 2014 but the historic price of the gigabyte toward the storage lives at $10 but today it is $0.10 so with lower fees or commissions commissions, yes. they have come down but they have stopped and i could probably come down further the notion of the paving goes the way the price would go up is hard to justify but competitive forces will force that out of the market. . .

Key Capitol Hill Hearings
CSPAN June 18, 2014 12:00am-2:01am EDT

Speeches from policy makers and coverage from around the country.

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